Oil halts decline with GDP not as bad as feared

Brian Beauchesne, of Haffner's Fuel Oil, stands on top of his truck to fill it with home heating oil in Methuen Thursday, Jan. 29, 2009. Oil prices dropped Thursday as layoffs spread, orders for big-ticket manufactured goods evaporated and the U.S. homebuilding industry posted its worst annual sale

/ AP

Brian Beauchesne, of Haffner's Fuel Oil, stands on top of his truck to fill it with home heating oil in Methuen Thursday, Jan. 29, 2009. Oil prices dropped Thursday as layoffs spread, orders for big-ticket manufactured goods evaporated and the U.S. homebuilding industry posted its worst annual sales in more than two decades. (AP Photo/Elise Amendola)

Brian Beauchesne, of Haffner's Fuel Oil, stands on top of his truck to fill it with home heating oil in Methuen Thursday, Jan. 29, 2009. Oil prices dropped Thursday as layoffs spread, orders for big-ticket manufactured goods evaporated and the U.S. homebuilding industry posted its worst annual sales in more than two decades. (AP Photo/Elise Amendola) (/ AP)

CHRIS KAHN, The Associated Press

Energy prices perked up Friday as an economic report suggested that the nation's economy did not shrink as much feared, which could give more meaning to production cuts by major oil producers.

For the last seven months, OPEC and other oil producing nations have been unable to cut supply fast enough as a global economic crisis sapped energy demand.

On Friday, oil prices rose after the Commerce Department reported the economy shrank at a 3.8 percent pace at the end of 2008, which was not as bad as economists had expected. However, many analysts believe the economy has been contracting even faster this year.

Light, sweet crude for March rose 24 cents to settle at $41.68 a barrel on the New York Mercantile Exchange.

The Organization of the Petroleum Exporting Countries promised last year that it would slash production 4.2 million barrels a day, and leaders of the cartel said this week they may cut production even more.

Analysts are looking for signs that OPEC's production cuts are finally siphoning off global supplies, though it's hard to see where they're taking effect.

U.S. storage facilities are brimming with surplus crude. They house more than 338.9 million barrels of crude oil, up from 15.7 percent from a year ago, according to the Energy Information Administration. That's enough to supply 14 million cars with gas for a year.

"Everyone's watching what OPEC will do, if they're actually going to follow through and finish their cuts," said Gene McGillian, an analyst at Tradition Energy.

Trader and analyst Stephen Schork, in his Schork Report, forecast that crude supplies will only grow as the high-demand winter season ends.

Stephen Schork, an analyst and trader, said demand for crude should drop even further in coming months. Not only are people driving less and manufacturers making less, oil companies are expected to take refineries offline as part of a seasonally scheduled maintenance.

"That's a lot of fundamental demand leaving the market," Schork said.

Oil companies began reporting earnings this week and as expected, the fourth quarter was filled with huge profit declines, and even a $2.81 billion loss for Royal Dutch Shell PLC, Europe's largest oil company.

Oil giants Exxon Mobil Corp. and Chevron Corp. both reported better than expected earnings, but profits still fell compared with last year. Exxon's $45.2 billion profit for 2008 broke its own record for U.S. corporations, but its fourth-quarter earnings fell 33 percent.

Chevron, the nation's second largest oil company, said it earned $23.93 billion in 2008 and $4.9 billion for the fourth quarter. Its revenues slid 26 percent in the final quarter of the year.

Good news was hard to find elsewhere as the government issued a series of grim reports that showed the recession was getting worse.

The Commerce Department said Thursday orders to U.S. factories for big-ticket manufactured goods fell by 5.7 percent in December, the fifth straight monthly drop, while sales of new homes plunged 14.7 percent last month, the slowest monthly pace on record.

Major U.S. companies continued to announce job layoffs throughout the week.

Heavy equipment maker Caterpillar Inc. said Friday it would slash 2,110 jobs. That was on top of the 20,000 job cuts the company announced earlier this week.

Industrial conglomerate Textron Inc. announced 2,000 job cuts, citing weak demand for corporate jets. Railroad operator Norfolk Southern Corp. has reduced its staff by 6 percent in the last eight months, and it said more job cuts are likely.

"It certainly does appear that the financial crisis has hit harder than people first thought it would," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney.

Oil prices, which have fallen about 72 percent since peaking near $150 in July, have traded in the mid-$30s and high-$40s since December.

Prices at the pump rose again overnight to a new national average of $1.846 a gallon Wednesday, according to auto club AAA, Wright Express and the Oil and Price Information Service. Prices are about 23 cents higher than a month ago, but $1.14 lower than last year at this time.